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Dow Chemical Falls as Earnings, Sales Miss

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Dow Chemical saw its profit rise in third-quarter 2013 on strength across agriculture, coatings and plastics businesses and healthy gains from emerging markets. But its shares fell on lower-than-expected top and bottom line numbers.

The biggest U.S. chemical maker by sales raked in profit of $594 million or 49 cents a share in the quarter, a 20% rise from $497 million or 42 cents a share registered a year ago.

Barring costs associated with its restructuring program, Dow earned 50 cents a share in the quarter. That, however, missed the Zacks Consensus Estimate by 4 cents.

Revenues crept up roughly 1% year over year to $13,734 million in the reported quarter as gains across agricultural sciences, coatings, performance plastics and electronics were offset by declines in performance materials and feedstocks and energy. Sales in emerging markets rose 5%. However, revenues missed the Zacks Consensus Estimate of $13,946 million.

Dow saw weakness in its performance materials business (that offers Epoxy product lines) in the quarter which was hamstrung by lower volumes. The unit recorded a 36% year over year decline in earnings before interest, taxes, depreciation, and amortization (EBITDA) in the quarter.

Dow continues to seek opportunities to optimize its portfolio by selectively divesting its assets. The company is considering selling businesses including Epoxy and chlorine derivatives that are exposed to raw material price fluctuations. CEO Andrew N. Liveris said that the company remains on track to mop up at least $3 billion to $4 billion from asset sales.

The Michigan-based company’s shares were down as much as 4.5% in pre-market trading, reflecting the miss. The stock is up roughly 25% so far this year.

Volume and Pricing

Price rose 3% year over year driven by gains across performance plastics and agriculture. Volume, however, fell 2% in the quarter. The company saw volume gains across agriculture, electronics and coatings businesses in the quarter.

Segment Analysis

Electronic and Functional Materials

Revenues rose 5% year over year to $1.2 billion in the reported quarter as higher volume more than offset lower pricing. Healthy demand for OLED materials contributed to volume gains in the electronic materials business. Functional materials sales rose on higher demand in energy and home care sectors. Volume rose in microbial control and consumer and industrial solutions.

Coatings and Infrastructure Solutions

Sales moved up 6% to $1.8 billion in the quarter on higher volume and pricing. Sales gains were recorded across all regions. Building and construction sales rose on volume gains across the board. Coating materials sales were boosted by strong gains in architectural coatings. Healthy demand in reverse osmosis technologies in Asia Pacific drove sales in water and process solutions.

Agricultural Sciences

The segment racked up the biggest gain in the quarter with sales rising 8% year over year to a third quarter record of $1.4 billion, benefiting from healthy volume gains and higher pricing. Crop protection products revenues rose 10% riding on higher sales of herbicides across North and Latin America and insecticides in Latin America.

New crop protection revenues are up 12% year to date. Sales of seeds, traits and oils fell 4%, impacted by a late, wet planting season in North America.  The company, however, continued to witness strong demand for SmartStax corn hybrids.

Performance Materials

Revenues fell 3% to $3.3 billion as price increase was offset by a decline in volume. Volume gains in automotive systems and propylene oxide/propylene glycol were masked by declines in the Epoxy business amid competition as well as in polyglycols, surfactants and fluids due to fewer projects in the quarter.

Performance Plastics

Sales went up 3% to $3.6 billion in the quarter, aided by healthy gains across North America, Asia Pacific and Latin America. Packaging and specialty plastics sales were higher in North and Latin America as well as Asia Pacific but fell in Europe due to the closure of a polyethylene plant in Belgium. Food and specialty packaging sales were strong in the quarter.

Sales, however, fell across elastomers and electrical and telecommunications businesses. Elastomers revenues fell on weak pricing while soft demand from power markets hurt electrical and telecommunications sales.

Feedstocks and Energy

The segment was once again the weakest link with revenues falling 7% to $2.3 billion on lower volume due declines in hydrocarbons in Europe and caustic soda. Price was flat in the quarter.

Financial Health

Dow ended the third quarter with cash and cash equivalents of roughly $5.3 billion, up 36% year over year. Total long-term debt declined roughly 9% year over year to around $18.2 billion.

Dow’s continued efforts to de-leverage its balance sheet led to a reduction in net debt to total capitalization ratio to 34.7%, down from 39.7% a year ago. The company generated operating cash flows of $1.4 billion in the quarter, up 27% year over year.


Dow, a Zacks Rank #3 (Hold) stock, said that it will continue to focus more on attractive end-user markets and cut its exposure in non-strategic markets amid a challenging business environment.

Dow will continue to pursue its cost reduction and efficiency programs while reducing debt, improving cash flows and maximizing shareholder returns. Moreover, the company will continue to invest in attractive regions through highly-accretive projects including the expansions in the U.S. Gulf Coast and Sadara joint venture in the Middle East.

Dow, under its restructuring program, is reducing its global headcount and closing some of its manufacturing facilities. The company targets aggregate cost savings of $2.5 billion with $1 billion expected this year.

Dow’s results put a spotlight on demand trend for chemical products. Among other big chemical names, DuPont , which reported on Oct 22, saw a solid rise in profit. Gains across electronics, performance materials and agriculture businesses offset lingering weakness in its performance chemicals unit. DuPont backed its earnings outlook for the full year.

Celanese’s (CE - Free Report) third quarter results, reported on Oct 21, were a mixed bag with earnings beating expectations while sales missing. It saw sustained weakness in its core acetyl intermediates business. Eastman Chemical (EMN - Free Report) will report its third quarter results after the closing bell today.

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